Wholesale Introduction These VA Program Guidelines provide a general overview of the VA products and policies eligible for delivery to EA for financing consideration. The details are based on the policies outlined in the VA Handbook. This document should be used solely as a reference to EA s interpretation of the VA Handbook and does not constitute a commitment to lend. Product Overview Endeavor America currently offers the following VA loan programs: High Balance Standard Advantage IRRRL 30 year Fixed > $417,000 loan amount 30 year Fixed 15 year Fixed 640 min FICO 30 year Fixed 15 year Fixed 580-639 FICO AUS Refer 30 year Fixed 15 year Fixed No FICO 580 FICO with No Appraisal Principal Residence Maximum Base Loan 1 Base Loan Purpose Units LTV FICO Units Conforming High Balance Conforming Purchase, Cash-out, IRRRL 1 4 100% 580 IRRRL No Appraisal 1 Unlimited 580 1 $75,000 - $417,000 $417,001 - $1,200,000 High Balance Purchase, Cash-out, IRRRL 1 4 100% 580 NOTE: VA s max guarantee amount will only be based on the One-Unit (single family) limit. IRRRL No Appraisal 1 Unlimited 620 Maximum Potential Guaranty2, 3, 4 Second Home and Investment Property Base Loan Guaranty Conforming IRRRL 1 4 100% 580 $45,000 50% of Loan High Balance IRRRL 1 4 100% 600 $45,001 - $56,250 $22,500 Funding Fee $56,251 - $144,000 40% of Loan with a maximum of $36,000 Type of Veteran Down Payment 1 st Time Subsequent $144,001 - $417,000 25% of the Loan with a maximum of $104,250 Purchase > $417,001 5 Lesser of 25% of VA county limit, OR 0% - <5% 2.15% 3.30% 25% of loan amount Regular Military 5% to < 10% 1.50% 1.50% NOTES 10% 1.25% 1.25% 1. Maximum guaranty is 25% of VA high costs county limit. 0% - <5% 2.40% 3.30% 2. VA guaranty or combination of guaranty plus down payment/ subject Reservists/National Guard 5% to < 10% 1.75% 1.75% equity must equal 25% of the total loan amount including funding fee. 10% 1.50% 1.50% 3. The maximum guaranty is the lesser of available entitlement or the Cash-out Refinance maximum potential guaranty amount indicated above. Regular Military 2.15% 3.30% 4. Minimum guaranty of 25% is required on IRRRLs. Reservists/National Guard 2.40% 3.30% 5. CLTV is unlimited. The maximum LTV is 100% unless stated IRRRL: Regular Military AND Reservists/Nat. Guard 0.50% 0.50% otherwise in a subtopic in the EALS Wholesale. 6. Max cash-out on manufactured homes with LTVs greater than 85% is $500.00. 7. <640 revolving debts to be paid off to qualify must also be closed. 8. EA does not make exceptions/overrides to GSE guidelines. Endeavor America Loan Services 05/19/2016 Page 1 of 59
Wholesale Endeavor America s Credit Philosophy... 9 Ability to Repay... 9 Age of Documents... 9 Credit Documents... 9 Title Report... 9 Appraisal... 9 Appraisal... 9 General Information... 9 Appraisal Form Requirements... 10 Acreage... 10 Age Restricted Properties (55 + senior communities allowed)... 10 Carbon Monoxide Detectors... 10 Farm Residence... 11 Inspection Requirements... 11 Minimum Property Requirements... 11 New/Existing Construction... 11 New/Existing < 1 Year Exhibits and Inspections... 12 Proposed/Under Construction... 13 Proposed/Under Construction Exhibits and Inspections... 13 Notice of Value (NOV)... 15 Property Listed for Sale... 15 Assets... 16 Endeavor America Loan Services 05/19/2016 Page 2 of 59
Wholesale Cash to Close... 16 Bank Statements Large Deposits... 16 Business Funds... 16 Documentation... 16 Down Payment... 16 Earnest Money... 17 Gift Funds... 17 Retirement Account... 17 Sale of Home... 17 Assumability... 17 Borrower Eligibility... 18 Other Eligible Borrowers... 18 Foreign Address... 19 CAIVRS... 19 Certificate of Eligibility... 19 Certificate of Eligibility (COE)... 19 Automated Certificates of Eligibility (ACE)... 19 Credit and Obligations... 20 30-Day Charge Accounts... 20 Alimony/Child Support... 20 Bankruptcy... 20 Chapter 7... 20 Chapter 13... 20 Child Care Expenses... 21 Endeavor America Loan Services 05/19/2016 Page 3 of 59
Wholesale Co-Signed Loans... 21 Consumer Credit Counseling... 21 Collections and Delinquent Accounts... 21 Deferred Student Loans... 21 Delinquent Federal Debt... 21 Foreclosures... 22 Inquiries... 22 Housing History... 22 Job Related Expenses... 22 Judgments/Tax Liens... 22 Modified / Restructured Loans... 22 Non-Traditional Credit... 23 Payoff of Debt to Qualify... 23 Significant Debt... 23 Short Sales... 24 Community Property States... 24 Conversion of Primary Residence... 25 Conversion of a Primary Residence to a Second Home... 25 Conversion of a Primary Residence to a Rental Property... 25 Pending Sale of Real Estate... 25 Disaster Re-Inspections... 25 Escrow Holdbacks... 26 Eligible Properties... 27 Ineligible Properties... 28 Endeavor America Loan Services 05/19/2016 Page 4 of 59
Wholesale Eligible Transactions... 28 Ineligible Products or Transactions... 29 Employment/ Income Verification... 29 Active Duty Military... 29 Allowances on LES... 30 Basic Allowances... 30 Flight Pay, Overseas Pay, Combat Pay... 30 Special Separation Benefit (SSB)... 30 Voluntary Separation (VSI)... 30 Auto Allowances... 31 Business Loss from Non-Purchasing Spouse... 31 Disability Income... 31 Foster Care... 31 Non-Taxable Income... 31 Rental Income... 32 Reserve/National Guard... 32 Retirement... 33 AUS Income Documentation... 34 Documentation... 34 Alimony/Child Support... 34 Gap in Employment... 34 Current Employment... 34 Documentation... 35 Previous Employment... 35 Endeavor America Loan Services 05/19/2016 Page 5 of 59
Wholesale De-Minimis Self-Employment... 35 Documentation... 36 Self-Employed: Personal Tax Returns... 36 Self-Employed: Commissioned Borrower... 36 Self-Employed: Profit & Loss Statements and Balance Sheets... 36 Self-Employed: Business Returns... 36 Entitlement... 37 Guaranty... 39 Escrow Waivers... 39 Fees and Charges... 40 Funding Fee... 41 Insurance... 42 Interested Party Concessions... 42 Manufactured Homes... 42 Restrictions... 42 General Eligibility Requirements Title II... 43 Credit Score... 44 Elevation Certificate Flood Zones A & V... 44 Engineer s Certification of Foundation Compliance... 45 HUD Red Tags... 45 HUD Data Plate... 46 Ineligible properties... 47 Insurance... 47 Modular Homes... 47 Endeavor America Loan Services 05/19/2016 Page 6 of 59
Wholesale New Construction... 47 Title Binder... 48 Well and Septic... 48 Maximum Term... 48 Occupancy... 49 Power of Attorney... 49 Qualifying... 49 Reserves... 50 Interest Rate Reduction Refinance (IRRRL)... 50 Non-Credit Qualifying... 50 General Guidelines... 50 Borrower Eligibility... 50 Credit Score... 51 Funding Fee... 51 Guaranty... 52 Loan Limit... 52 Matrix (LTC, Score, Units)... 52 Mortgage Verification... 52 Net Tangible Benefit... 53 Occupancy... 53 Online Status Inquiry (in lieu of COE)... 53 Recently Listed Property... 53 Subordinate Financing... 53 Rate Decrease and Maximum Term... 54 Endeavor America Loan Services 05/19/2016 Page 7 of 59
Wholesale Loan Documentation... 54 IRRRL... 55 Credit Qualifying... 55 Income/Assets... 55 IRRRL with NO Appraisal... 55 Residual Income Requirement... 56 Secondary Financing... 57 Underwriting... 58 Automated Underwriting (AUS)... 58 Manual Downgrades... 58 Manual Underwriting... 59 Compensating Factors... 59 Endeavor America Loan Services 05/19/2016 Page 8 of 59
Endeavor America s Credit Philosophy Endeavor America credit philosophy is to offer loan programs with minimal overlays to our clients. Endeavor America evaluates each loan individually based solely on the borrower(s) creditworthiness and in accordance with the following principles: All loans must be submitted to Desktop Underwriter (DU) or Loan Prospector (LP) using a Credco credit report and receive an Approve or Accept rating with the exception of IRRRL. Loans that receive AUS Refer may be manually underwritten with a DTI 50% and 120% residual income. All VA policies as outlined in the VA Handbook and applicable circulars have been met. All requirements of the DU Approve/Eligible or LP Accept/Eligible recommendation have been met for AUS-approvals. All prudent factors have been weighed and evaluated on the loan file and no reasonable doubt remains about the borrower s ability to meet the terms of the loan. Topic Ability to Repay Guidelines Endeavor America will verify borrower s income, employment, assets, credit, recurring expenses and other aspects of the loan to make ensure the borrower can reasonably repay the loan in accordance to VA guidelines. The EALS underwriter must complete an Ability-to-Repay form for purchases and cash-out refinances which will be retained in the loan file. Age of Documents Credit Documents (credit report, employment, income, and assets) must be no more than: Existing Property: 120 days from the Note date. New Construction: 120 days from the Note date. Title Report 90 days from the Note date. Appraisal 180 days from the issuance date of the VA Notice of Value (NOV). Appraisal General Information Endeavor America requires all brokers to be sponsored to transact VA loans. Loans from broker with pending sponsorship will be reviewed on a case by case basis and the broker may not process more than four loans on an annual basis. Transferred Appraisals must reflect the Any Qualified Veteran in the borrower field as per VA Circular 26-14-26. Endeavor America Loan Services 05/19/2016 Page 9 of 59
Appraisal Appraisal Form Requirements Form 1004 is for 1-unit single family property and the appraisal report must include: Interior photos of the Kitchen All bathrooms Main living area Examples of physical deterioration, if present Examples of recent updates such as restoration, remodeling and renovation, if present Clear, original photos of the front and rear with different views of the subject sides in each photo, subject street views and front view of each comparable. Appraiser to comment if photos from multiple listing service are used (e.g. gated community). Include photos of any improvement, site feature or view that would affect the final market value. Form 1004C for manufactured housing Form 1073 is required for attached condominiums Form 1025 is required on 2-4 unit properties Form 2055 Exterior Appraisal with 1004MC for single family (Forms 1075 & 1004MC for condos) are required for IRRRLs Acreage Acreage must be common for the area Age Restricted Properties (55 + senior communities allowed) The appraisal must reflect the impact that the restrictions have on the property s value and marketability. The appraisal must be supported by comparables with similar restrictions. Borrower(s) must acknowledge the restriction terms by signing a Resale Restriction Notice at closing. Carbon Monoxide Detectors If required by the state the property and the carbon monoxide detectors are missing or nonfunctional: As-is appraisal requires a 1004D completed by the appraiser or a Lender Certification along with supporting photo(s) to verify the detectors have been installed and/or are currently functioning on every floor of the property. Subject to appraisal requires a 1004D completed by the appraiser to verify the detectors have been installed and/or are currently functioning on every floor of the property. Carbon monoxide detectors should not be listed as a MPR on the appraisal report. Endeavor America Loan Services 05/19/2016 Page 10 of 59
Appraisal Farm Residence The property must be occupied by the veteran as the primary residence and cannot be income producing. VA only gives value to the home and the physical buildings attached to the land that support the residence. The valuation cannot include any income producing aspects such as livestock, crops, equipment and/or supplies. The loan cannot cover the nonresidential value of the farm land. Inspection Requirements Appraiser must look for and report evidence of wood destroying insect infestation, fungus growth, and dry rot, in addition to any other VA requirements. Refer to VA Circular 26-14-8 for guidance on repair inspection processing procedures. Minimum Property Requirements Subject property s overall condition must meet VA s Minimum Property Requirements (MPRs) for safety, sanitation and soundness. All readily observable repairs recommended by the VA appraiser must be satisfied prior to closing. Reference: VA LH, Chapter 12 and applicable VA circulars. New/Existing Construction (completed less than 1 year and never occupied) Builder must be VA approved with a valid VA builder ID number prior to NOV issuance, and Construction is 95% completed in accordance with VA MPRs with only customer preferences left (interior wall finishes, floor coverings, appliances, counter tops, fixtures sinks and toilets, equipment range, dishwasher, disposals, air conditioning compressors (not central A/C), minor trim work, insulation, final grading, sodding/seeding, etc.) Endeavor America Loan Services 05/19/2016 Page 11 of 59
Appraisal New/Existing < 1 Year Exhibits and Inspections Subterranean Termite Soil Treatment Builder s Guarantee (Form NPCA-99a/ NPMA-99-A) unless state specific form is more stringent. Form NPCA-99b/ NPMA-99-B is also required if builder treated with soil termiticide. If property is over 95% complete, a termite inspection report may be used. 1 year Builder s Warranty (Warranty of Completion of Construction, VA Form 26-1859 or HUD Form 92544) if property was inspected at least 3 times during the construction process. NOV requirements are: VA Not Inspected Acknowledgment for New Construction with 1-Year Builder s Warranty (NOV item 12a), AND "I am aware that VA did not inspect this property during construction and that VA assistance with construction complaints will be limited to defects in equipment, material and workmanship reported in writing during the one-year VA builder warranty period. 1 year Builder s Warranty on VA Form 26-1859, Warranty of Completion of Construction OR, if 10-year protection plan, NOV requirements are: Evidence of enrollment in a 10 year insurance protection plan acceptable to HUD, AND VA Not Inspected Acknowledgment for New Construction with 10-Year Warranty (NOV items 12b and 13) "I am aware that VA did not inspect this property during construction and that it does not qualify for VA assistance with construction complaints. Builder Certification on company letterhead, signed and dated by the builder, architect or engineer. I certify that the construction exhibits for [subject legal address] met all local code requirements and are in substantial conformity with VA Minimum Property Requirements, including the energy conservation standards of the 1992 Council of American Building Officials Model Energy Code and the requirement for lead-free water piping. VA also accepts the HUD Form 92541 Lead/water distribution system from builder Off street improvements (unless SAR has evidence that the streets, drainage, water and sewer have been completed and accepted for maintenance by the local authority (i.e., the subject is a new home in an older established neighborhood. Clear Final Inspection with photos using VA Form 26-1839, VA Compliance Inspection Report Certificate of Occupancy Well & Septic, if applicable Endeavor America Loan Services 05/19/2016 Page 12 of 59
Appraisal Proposed/Under Construction Builder must be VA approved, and Property must be constructed in accordance with VA Minimum Property Requirements (MPRs) and any applicable VA circulars. Proposed/Under Construction Exhibits and Inspections Certificate of Occupancy Warranty of Completion of Construction (VA Form 26-1859 or HUD Form 92544) Description of Materials (VA Form 26-1852) signed & dated by the builder and veteran borrower Plans of the Plot, identifying locations of the well/septic systems (if applicable) All exterior building elevations All floor levels Foundation or basement plan Sectional wall details Builder Certification on company letterhead, signed and dated by the builder, architect or engineer. I certify that the construction exhibits for [subject legal address] met all local code requirements and are in substantial conformity with VA Minimum Property Requirements, including the energy conservation standards of the 1992 Council of American Building Officials Model Energy Code and the requirement for lead-free water piping. VA also accepts the HUD s Builder Certification of Plans, Specifications and Site (Form HUD-92541) Construction Inspections must be completed to ensure: Property was built according to the plans and specifications Property meets VA s Proposed Construction MPRs [Refer to VA LH, Section 12.02] Endeavor America Loan Services 05/19/2016 Page 13 of 59
Appraisal IF Property is appraised as: Proposed/Under Construction without 10-Year Insured Protection Plan and 1 year Builder Warranty Proposed/Under Construction with 10-Year Insured Protection Plan and 1 year Builder Warranty Existing Construction with major alterations, improvements, or repairs New/Existing Construction < 1 year old Existing Construction (1 year old) Construction Inspections and Warranty Requirements 1 year builder warranty EITHER ONE of the following compliance Inspections: Local building authority completes inspections at 3 stages of construction and issues Certificate of Occupancy (CO) or equivalent, Stage 1/Foundation: completion of excavation and foundation walls Stage 2/Framing: completion of the superstructure AND below superstructure Stage 3/Final: completion of all onsite and offsite improvements IF local building authority does NOT issue CO, VA will accept copies of the inspections OR written statement from local authority that the required 3 inspections were performed satisfactorily as evidence completion in accordance with all applicable local building codes. BOTH 1 year builder warranty and 10 year HUD accepted insured protection plan are required. If local authority does NOT perform the required inspections, then the lender must certify the property is 100% complete (both on-site and off-site improvements) and that property meets VA s MPRs for existing construction. VA or LAPP underwriter will determine on case-by-case basis, based on the nature of the work: which regular or special inspections are required, if appropriate, AND appraiser or lender will certify satisfactory completion. EITHER 1-Year Builder s Warranty of Completion of Construction (VA Form 26-1859 or HUD Form 92544), OR 10-Year HUD accepted insured protection plan NO warranty is required. Endeavor America Loan Services 05/19/2016 Page 14 of 59
Appraisal Changes to Exhibits: change is limited to substitution of mechanical equipment of equal value. After the appraisal was completed, use VA Form 26-1844, Request for Acceptance of Changes in Approved Drawings and Specifications. VA staff must approve any VA Form 26-1844 Notice of Value (NOV) The Notice of Value (NOV) is issued by an Endeavor America SAR (Staff Appraisal Reviewer) on LAPP cases based on appraisal report completed by the VA fee appraiser. Cases ordered as IND in weblgy will be reviewed by the Regional Loan Center. The veteran must receive a copy of the NOV within 5 days of the NOV issuance. NOV is valid for six months SAR must issue the NOV at the fee appraiser s value estimate reflected in the appraisal report. SAR must consider the local requirements [VA web link: http://www.benefits.va.gov/homeloans/appraiser_cv_local_req.asp Property Listed for Sale For refinances including IRRRLs, a property listed for sale at the time of the loan application is ineligible for financing with Endeavor America. There is no minimum waiting requirement for properties with expired listings, or have had their listing cancelled or removed prior to the loan application. Endeavor America Loan Services 05/19/2016 Page 15 of 59
Assets Endeavor America requires the borrower(s) have sufficient assets to meet the down payment, closing costs not financed into the loan and the difference between the purchase and sales price (if higher), and cash reserves. AUS DU/LP findings will be followed with the exception of Verification of Deposits, which are not accepted by EALS. Cash to Close Bank Statements Large Deposits Business Funds Verify sufficient cash to cover any veteran-paid closing costs or points AND Verify the difference between the sales price and loan amount IF the sales price exceeds the NOV. Borrower s explanation with source of funds documentation is required for: Large deposits which refers to a deposit amount that exceed 25% of the total qualifying income (or less at underwriter s discretion). Unless readily identified deposit source such as federal/state tax refund, SSA benefit, payroll direct deposit, etc. Current balance is significantly higher than average balance Any bank account opened within 90 days of application date. Document borrower s ownership (e.g. business license, corporate/partnership returns) Used for down payment and closing costs (cannot be used for cash reserves) CPA provides a letter stating: Borrower has full use of business funds. No repayment is required and funds are not an advancement against future earnings/cash distributions. The withdrawal of funds does not have negative impact on business and comment on future tax implications. Documentation Down Payment AUS Approve/Accept Loans: Obtain most recent bank statement for each account AUS Refer/Manual Approval Loans: Obtain most recent two (2) months consecutive months for each account No down payment is required by VA (provided the borrower has full entitlement) unless: the sales price exceeds the appraised value, or the requested loan amount exceeds VA county loan limit: http://www.benefits.va.gov/homeloans/purchaseco_loan_limits.asp Endeavor America Loan Services 05/19/2016 Page 16 of 59
Assets Earnest Money Gift Funds Retirement Account Verify earnest money deposit (EMD) if: EMD will be credited back to the veteran borrower at closing EMD exceeds 2% of sales price Appears excessive based on the borrower s accumulated savings history. Document as follows: Copy of the cancelled check and deposit holder s acknowledgment of receipt. Bank statements to source the deposit check as determined by the AUS findings. Gift letter must: Certify the gift was not sourced from an interested party to the transaction (e.g. seller, realtor, builder, loan originator, etc.) Identify the relationship, donor s name and address, gift amount and date given, donor s source account Executed by the donor and recipient(s) Donor may be: An immediate family member A close friend with a clearly defined and documented interest in the borrower A local, federal, state agency, or a VA approved non-profit agency that is considered an instrumentality of the government Donor s ability must be documented from an acceptable source (not an interested party). Cashon-hand is not acceptable. Document the gift transfer NOTE: Gifts of Equity are not allowed and are not recognized by VA. 60% of the vested balance can be considered as cash reserves If using retirement funds for reserves, document the terms of withdraw Sale of Home AUS Approve/Accept Loans: Obtain an executed HUD-1 Settlement Statement (loan applications on/before 10/02/2015) or Closing Disclosure (loan applications on/after 10/03/2015) or equivalent closing statement If relocation, obtain buyout agreement. AUS Refer/Manual Approval Loans: Additionally, verify source of funds for payment of any differences between sales price and loan amount plus closing costs, if sales price exceeds the NOV. Assumability A VA mortgage is assumable by qualified borrower(s) during the life of the loan. Endeavor America Loan Services 05/19/2016 Page 17 of 59
Borrower Eligibility For veterans who served active duty and were honorably discharged, the minimum service periods shown in the following table are based on continuous days of active duty. Eligible Veterans Era Dates Minimum Service Requirement World War II 09/16/1940 07/25/1947 90 days Post World War II 07/26/1947 06/26/1950 181 days Korean 06/27/1950 01/31/1955 90 days Post-Korean 02/01/1955 08/04/1964 181 days Vietnam 08/05/1964 05/07/1975 90 days Post-Vietnam 05/08/1975 09/07/1980 181 days 09/08/1980 08/01/1990 2 years: Enlisted after 09/07/1980 and Officer after 10/16/1981 Persian Gulf 09/08/1980 present 2 years OR full period called to active duty, not less than 90 days Other Eligible Borrowers Additionally, the following table addresses identifies other eligible borrowers including Reserves/National Guards. The service times for Reservists and Nation Guards can be pieced together and do not have to be consecutive. Active Duty, Reserves/National Guards Other Eligible Borrowers Minimum Service Requirement Active duty member 90 days minimum wartime service when called up under U.S.C. Title 10 181 days minimum peacetime service of continuous active duty. Active Reserve or National Guard 6 years in Selected Reserves Except if discharged due to a service connected disability before completion of 6 years. Honorably discharged from service unless: Inactive status awaiting final discharge, or Still serving Other Eligible Borrowers Unmarried surviving spouse POW/MIA Spouse Spouses Minimum Service Requirement No time requirement. Veteran must have died on active duty or from a service-connected disability. VA Form 26-1817, Request for Determination of Loan Guaranty Eligibility Unmarried Surviving Spouses must be completed and submitted to applicable VA Eligibility Center in Winston Salem, NC. or Atlanta, GA. A loan obtained with a surviving spouse COE requires an affidavit at closing that the surviving spouse is not married. Veteran must have been POW or MIA for 90 days. Endeavor America Loan Services 05/19/2016 Page 18 of 59
Borrower Eligibility CAIVRS Certificate of Eligibility Foreign Address Borrowers currently residing in a foreign country must have a primary residence or second home in the U.S. The borrower s U.S. residence must be reflected as the present address on the loan application. The borrower s foreign address must be reflected as the mailing address on the loan application. A LOE from the borrower must be obtained to explain the borrower s current residency situation. Perform and document a CAIVRS screening on each veteran and any co-obligor. An applicant cannot be considered a satisfactory credit risk if he or she is presently delinquent or in default on any debt to the federal government until the delinquent account has been brought current or satisfactory arrangements have been made between the veteran and the federal agency. CAVIRS is not required for non-purchasing spouses in community property states. Certificate of Eligibility (COE) The Certificate of Eligibility (COE) shows the available entitlement amount that VA will use to guaranty the loan. The borrower who is using his/her entitlement to guarantee the loan must be listed as the primary borrower. COE can be obtained by sending to the appropriate VA Eligibility Center the following documentation: VA Form 26-1880 Proof of service documentation (DD214, active duty statement of service, or Reserve/National Guard points statement) Copy of HUD-1 Settlement Statement (loan applications on/before 10/02/2015) or Closing Disclosure (loan applications on/after 10/03/2015) if veteran had a previous VA home that was sold Automated Certificates of Eligibility (ACE) Lenders can obtain an online COE through the ACE system accessed on VIP website: http://vip.vba.va.gov ACE certificate has an authorization number for authenticity ACE cannot make all determinations for Reserves/National Guard Prior VA loan foreclosure Insufficient time/discharge type Unmarried surviving spouse Endeavor America Loan Services 05/19/2016 Page 19 of 59
Credit and Obligations 30-Day Charge Accounts Alimony/Child Support Open 30-day charge accounts (monthly payment reported as equal to outstanding balance or as $0) requires the balance to be paid in full every month. If additional liquid assets are verified to sufficiently cover the unpaid balance, the debts may be excluded from the DTI. Otherwise, the entire outstanding balance must be included in the DTI. Verify the payment amount and current status of the account Delinquent child support must be considered in the overall creditworthiness If the account is >90 days past due and there is no repayment arrangement, downgrade to a Refer. Bankruptcy Chapter 7 o AUS Approve/Accept: a Chapter 7 bankruptcy may be disregarded if discharged more than 2 years ago. o Manual underwrites or AUS Refer allow Chapter 7 that was discharged within 1-2 years provided both requirements are met: Obtain complete and thorough documentation trail of the circumstances that led up to the bankruptcy were beyond the borrower s control (e.g. unemployment, prolonged strikes, medical bills not covered by insurance). Document reestablished credit with 4 consumer debts opened after the bankruptcy with satisfactory 12 months pay history o Bankruptcy discharged within the past 12 months is not permitted. Chapter 13 o Documentation of debt restructure o Most recent 12 months acceptable payment history in accordance to the Ch. 13 Approved Plan. o Court s approval to proceed with VA loan If borrower converts a Chapter 13 into Chapter 7 that was subsequently discharged within the past 12 months, then refer to Chapter 7 guidance above. Endeavor America Loan Services 05/19/2016 Page 20 of 59
Credit and Obligations Child Care Expenses Co-Signed Loans Consumer Credit Counseling Collections and Delinquent Accounts Deferred Student Loans Delinquent Federal Debt o Child care letter is required for all children 13-years-old or younger (state specific requirement supersedes) and must include: child care costs, name and address of the provider) o Child care expenses must be included in the DTI and residual income o If there is no child care expense, obtain an explanation. A co-signed loan may be excluded from the borrower s monthly obligations with: Documentation loan payments are being made by someone else, AND Verification that the loan is current and being paid on time Late payments reported on debts assigned to the ex-spouse in a divorce do not need to be charged to the borrower, if the delinquencies occurred after the divorce. Consumer Credit Counseling Services (CCCS) is acceptable if ALL of the following are met: o o o o Documentation of debt restructure is required Acceptable 12 months payment history of debts included in the consumer s debt restructure. Counseling agency provides written authorization to proceed with new VA loan. AUS Approve/Accept loans: the credit has met VA guidelines and the CCCS is not impacting the loan. Consequently, a written authorization is not necessary. Any additional requirements per AUS findings. o Delinquent accounts including collections do not necessarily have to be satisfied prior to closing, subject to the underwriter s discretion and the AUS findings. o Reestablished credit with 12 months satisfactory payments after the date of the last late payment if prior derogatory payments didn t involve a bankruptcy. o Qualify with the monthly for ALL student loans due within 12 months of closing. o Education loans with > 12 months verified deferment may be excluded in the debt calculation. o ANY delinquent federal debt (e.g. student loans; tax liens; etc.) must be brought current, paid in full, resolved with satisfactory repayment plan between the federal agency and the borrower. o Written verification is required from the federal agency to document that the delinquency has been paid in full, or repayment arrangements have been established. o Even though a debt may be satisfied, it doesn t take away from the fact the delinquency occurred and must be considered in the credit risk analysis. Endeavor America Loan Services 05/19/2016 Page 21 of 59
Credit and Obligations Foreclosures o Two (2) years minimum seasoning (from application date) is required for prior foreclosure and deed-inlieu of foreclosure on both AUS Approved and manually underwritten loans. o If prior VA foreclosure, check the COE to ensure sufficient entitlement and/or restoration of entitlement. o A detailed explanation with documentation is required to support the situation(s) that caused the foreclosure or deed-in-lieu- were beyond the borrower s control and unlikely to reoccur. o Must have reestablished credit with no housing or installment late payments after the foreclosure. Inquiries o Borrowers must address ALL inquiries within the past 120 days listed on the credit report and specifically addressing the reason and the disposition of each inquiry. o No explanation is required on AUS Approve/Accept Housing History o AUS Approved loans, rental verifications are not typically required o Mortgage history with more than one (1) X 30 days late within the past 12 months require an explanation and must be manually underwritten. o Mortgages not reporting on the credit report with more than one (1) X 30 requires a manual downgrade. Job Related Expenses o Job related expenses include: childcare expenses for children < 13-years-old, significant commuting costs of 50+ miles each way, undisclosed debt(s) on paystubs, and/or unreimbursed business expenses. Such expenses must be included in the DTI and residual income calculations. Judgments/Tax Liens o All judgments/tax liens must be satisfied prior to or at closing, or evidence provided of a repayment plan and timely payments for the most recent consecutive two (2) months. Payments may not be prepaid to meet the two consecutive payments. Modified / Restructured Loans o Purchase and refinance transactions where the borrower has had a modified/restructured mortgage may be acceptable as follows: o The modification/restructure adjusted the terms and/or payment only. o The mortgage must be current with no lates within the last 12 months. o oa modification that has been restructured to reduce the principal balance must meet the requirements of a shortsale. (see shortsale guidelines for details) Endeavor America Loan Services 05/19/2016 Page 22 of 59
Credit and Obligations Non-Traditional Credit Endeavor America requires most loans to receive an AUS Approve/Accept. Loans with borrowers who have insufficient credit and non-traditional credit are manually underwritten with a 41% maximum DTI. Borrower s payment habits may be determined with alternative credit reference from non-traditional sources of credit such as rent, utilities, cell phones, car insurance, or other expenses the borrower pays over time. o Each credit reference should provide the most recent 12 months payment history and current account rating with creditor phone number validated through third party public sources. o Non-traditional sources of credit cannot be used to offset poor credit history. Payoff of Debt to Qualify Significant Debt o Revolving debt may be paid off to qualify. The following documentation is required to show revolving debt paid: o Credit supplement showing debts have been paid off. o Borrower must document sufficient funds required to pay off debt. o If <640 FICO revolving debt being paid off to qualify must also be closed. The following documentation is required to show revolving debt paid and closed: o Credit supplement showing debts have been paid off and closed. o Borrower must document sufficient funds required to pay off debt. o A copy of the payoff and close out letter from the creditor must be provided. o If the seller is willing to pay off the borrower s revolving debt to qualify, the following apply: o Total amount of debt to be paid by the seller must be part of the seller concession not to exceed 4%. o Payoff statement provided by the creditor ; if <640 close out letters are also required to close the revolving accounts, and o Reflected on the closing disclosure. o Any debt that will have significant impact on the veteran-borrower s ability to meet their standard family living expenses must be included in calculating the debt ratio (VA defines significant as any debt that exceeds 2% of the total effective income used to qualify). o This guideline also applies to debts with <10 monthly payments remaining. o Underwriter may consider if there are reserves to cover the debt after closing or a source of income they were unable to use as effective income. Comments for excluding payments in DTI should be included in the Remarks section of the Loan Analysis. Endeavor America Loan Services 05/19/2016 Page 23 of 59
Credit and Obligations Short Sales o There is no waiting period when the borrower has a short sale appearing on their credit report. o All loans must be documented according to manual underwriting requirements. Most of these transactions will result in an AUS Refer. o The following must be met: o No lates on the most recent 12 month housing history. The requirement includes the mortgage with short sale if it was completed and the property was sold within the last 12 months. o Exceptions may be considered on a case-by-case basis with a detailed borrower s explanation and supporting documentation that the lender required the borrower to stop making payments in order to begin the short sale process. Community Property States Community property states: Alaska (optional), Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin. If the borrower resides in a community property state OR if the subject property is located in a community property state: Debts of the non-purchase spouse must be considered in the debt-to-income ratio and in the residual income calculation. o Obligations specifically excluded by state law need not be counted with satisfactory documentation to support the exempted debts. The greater of the reported monthly payment or 5% of the outstanding balance must be counted as the monthly obligation. Judgments, liens, and any other delinquent credit that would compromise Endeavor America s first lien position must be paid off prior to closing. Other delinquent debts would only be required to be paid off at the EALS underwriter s discretion. If the non-purchasing spouse doesn t have a SSN, a credit report is still required with public records search. CAVIRS is not required for non-purchasing spouses in community property states. Endeavor America Loan Services 05/19/2016 Page 24 of 59
Conversion of Primary Residence Conversion of a Primary Residence to a Second Home The veteran must qualify with the monthly housing expenses for both the departing residence and the subject transaction. Required reserves as determined per the AUS recommendation. Conversion of a Primary Residence to a Rental Property Rental income of the departed residence is calculated on a 75% of: Fair market rent as established by a state licensed appraiser s current Market Rent Analysis, or; Monthly gross rent from an executed lease agreement with security deposit receipt. Any positive cash flow cannot be used as qualifying income. Rental income is allowed only to offset the mortgage payment and the mortgage debt should be listed on the loan analysis as a rental offset. If the cash flow is negative, this must be considered as a debt. Reserves are not required unless necessary to maintain AUS Approve/Accept recommendation. Pending Sale of Real Estate When the veteran intends to sell the property but the sale will not close prior to the new VA purchase; Veteran must qualify with the PITI on both the current residence and the new primary purchase; Veteran must document minimum cash reserves of: o Six (6) months PITI for both properties, or; o Two (2) months PITI for both properties is able to document a minimum of 30% equity in the current residence. Disaster Re- Inspections Appraisal inspected on/before a declared disaster incident period end date: A re-inspection/exterior only appraisal on either form 1004D or form 2055 is required. If the re-inspection indicates damage, the extent of damage must be addressed. Completion of repairs is required prior to funding as evidenced by form 1004D, with photos. Endeavor America Loan Services 05/19/2016 Page 25 of 59
Disaster Re- Inspections Appraisal inspected after a declared disaster incident period end date: The appraisal must contain the following commentary/evidence: Property is free from damage and the disaster has no effect on the marketability. An interior inspection is required in all disaster-disaster areas for one year from the date of the disaster declaration. The appraiser must provide current photos of the subject property and comparable sales. Photos from MLS or the appraiser s database are not acceptable. Property Valuation Update, PIW, Exterior Appraisals (forms 2055, 1075): Not allowed until one year after disaster declaration date. VA Guaranty Eligibility: Any loan funded prior to the disaster is eligible for VA guaranty without regard to the disaster. For any unfunded loan that was appraised on/before the disaster date, the following certifications are required: o Lender Certification must be signed and dated by an EA underwriter This is to affirm that the property which is the security for VA loan number has been inspected to ensure that it was either not damaged in the recent disaster or has been restored to its pre-disaster condition, or better. o Veteran Certification must be signed and dated by the veteran I have inspected the property located at and find its condition now to be acceptable to me. I understand that I will not be charged for any disaster-related expenses, and now wish to close the loan. (for purchase transactions) Escrow Holdbacks The escrow of funds can permit the borrower to gain occupancy of the dwelling prior to completion of certain items which must be postponed due to weather conditions or other circumstances. Such items include, but are not limited to: o Walkways, driveways, and retaining walls o Exterior painting o Landscaping o Garages Endeavor America Loan Services 05/19/2016 Page 26 of 59
Escrow Holdbacks (Continued) Eligible Properties Endeavor America Loan Services permits the escrow of funds necessary to complete the unfinished work with the following requirements: o Withholding 1 ½ times the dollar amount necessary to complete the postponed items (estimated by a third party) a bid and or invoice from a licensed professional is required to determine the total costs of repairs required. o Holding funds in a proper, secure manner o Releasing the funds once the postponed items have been satisfactorily completed. o Construction of the dwelling must be complete and the house must be suitable for immediate occupancy o Postponement of the improvements must be beyond the control of the builder/seller (borrower in the case of a refinance) o Escrows limited to landscaping only and less than $500.00 do not require an escrow holdback o Completion of the escrow agreement at closing (VA Form 26-1849) http://www.vba.va.gov/pubs/forms/vba-26-1849- ARE.pdf o Completion of the Completion Inspection Report once work has been completed (VA Form 26-1839) http://www.vba.va.gov/pubs/forms/vba-26-1839-are.pdf The following properties are permitted under the VA Home Loan Program: 1-Unit single family and 2-4 multi-unit residential properties VA approved condo (VA web link: https://vip.vba.va.gov/portal/vbah/vbahome/condopudsearch) PUDs that meet all VA requirements Manufactured homes classified as real estate and meets VA requirements (single or double-wide) New construction by VA approved builder 95% completed construction except for customer preferences Completed less than 1 year and never occupied Proposed and Under Construction by a VA approved builder Note: EA only provides the permanent financing; not construction draws. Endeavor America Loan Services 05/19/2016 Page 27 of 59
Ineligible Properties Ineligible Property Types A property is ineligible if any of the following conditions are present: Marijuana grow facilities for income and/or personal use are on the premises Hawaii homes located in Lava Flow Hazard Zones 1 or 2, as determined by the USGS Condominium is not VA approved Condominiums or manufactured homes with less than 400 square feet Manufactured home not permanently affixed to the lot and is not considered real estate under the law Ownership NOT fee simple (e.g. cooperative, leasehold, ground rental arrangements) Property that cannot meet VA s minimum property standards Property has Chinese drywall Property location in any of the following: A Special Flood Hazard Area (SFHA) and flood insurance is not available A SFHA and is proposed/under/new construction with elevation of the lowest floor below the 100 year flood level An area subject to regular flooding for whatever reason(s), regardless if it s in SFHA. A Coastal Barrier Resources System area An Airport Noise Zone 3, if proposed or under construction A transmission line easement involving high-pressure gas or liquid petroleum or high voltage electricity, if any part of the residential structure is located within the easement An area susceptible to geological or soil instability (earthquakes, landslides, or other history of unstable soils) if proposed/under/new construction and the builder cannot provide evidence that either the site is not affected or the problem has been adequately addressed in the engineering design. On-frame modular SFH with acreage exceeding 30 acres Manufactured: single wide with land to value ratio exceeding 30%, double/triple exceeding 50% Eligible Transactions Purchase Principal residences only Refinance Interest Rate Reduction Refinance Loan (IRRRL) may be second home/investment property previously occupied by veteran Cash-Out/regular refinance (debt consolidation, rate and term reduction, home improvement, spousal buyout, equity takeout) - A cash-out refinance is a loan that refinances any type of lien against the secured property, including existing mortgages, tax or judgment liens. Properties that are owned free and clear are not eligible for cash-out refinancing. Endeavor America Loan Services 05/19/2016 Page 28 of 59
Ineligible Products or Transactions Ineligible Products or Transactions Co-signer who is not a legal spouse to the veteran Energy Efficient Mortgages (EEMs) Living and Land Trust Loans with non-occupying borrowers Non-arms-length transaction on a short sale when the seller and buyer are related Supplemental loans Temporary buydowns Transactions resulting in less than 25% guaranty Unsecured loans or loans secured by less than a first lien VA Adjustable Rate Mortgages (ARMs) VA Prior Approval loans: Loans made to two (2) or more veterans who will be using entitlement Loans made to veterans receiving VA non-service related pension Loans made to veterans rated incompetent by the Department of Veteran s Affairs VA IRRRLs currently delinquent at the time of application or closing Employment/ Income Verification Active Duty Military o If the borrower s active duty release date or the end of the contract term is within 12 months of the closing date, obtain any of the following: Document re-enlistment date beyond the 12-month period from the closing. A statement from the service member that he/she intends to re-enlist or extend his/her period of active duty to date beyond the 12-month period plus a statement from his/her commanding officer confirming the service member is eligible to re-enlist or extend his/her active duty and that there is no reason re-enlistment or extension of active duty will not be granted. Verification of a valid offer of local civilian employment following the release from active duty. Endeavor America Loan Services 05/19/2016 Page 29 of 59
Employment/ Income Verification Active Duty Military o o Documentation of strong mitigating factors such as: >10% down payment; significant cash reserves; and evidence of strong ties to community with adequate non-military spouse income so that only minimal income is needed from the active duty service member to qualify. A statement from the service member that he/she intends to re-enlist or extend his/her period of active duty to date beyond the 12-month period plus a statement from his/her commanding officer confirming the service member is eligible to re-enlist or extend his/her active duty and that there is no reason re-enlistment or extension of active duty will not be granted. Allowances on LES o Leave and Earnings Statement (LES) dated 120 days prior to the Note date is required. Basic Allowances o Non-taxable basic allowances may be used as effective income such as: quarters (BAH), subsistence (BAS), and clothing. o BAH is verified with form Stats of Housing Availability/DD Form 1747 that confirms borrower will not have housing accommodations available and that borrower has authorization to secure non-military housing. Flight Pay, Overseas Pay, Combat Pay o o Other taxable allowances include: flight or hazard pay, pro-pay, overseas pay, and combat pay. May be used as effective income if documented as follows: Document amount and history of receipt. Verify continuance consistent with the nature of the service member s duties (e.g. flight pay for a pilot). Special Separation Benefit (SSB) Voluntary Separation (VSI) o o o o o Special Separation Benefit (SSB) is a one-time lump sum that is taxable in the year of receipt. SSB is considered as a cash reserve (not effective income). VSI is paid annually and is taxable in the year of receipt. VSI may be used as qualifying income. Payment period is calculated by multiplying the service member s years of service times two. Endeavor America Loan Services 05/19/2016 Page 30 of 59
Employment/ Income Verification Auto Allowances Generally, auto allowances are paid to cover specific expenses related to the applicant s employment and may be used to offset a corresponding car payment. Business Loss from Non- Purchasing Spouse 2106 expenses for the non-borrowing spouse do not need to be subtracted from the borrower s income as long as the spouse s 1040 wages offset these expenses. All other non-borrowing spouse s losses, including Schedule E losses, must be subtracted from the borrower s income. Disability Income Disability income will be considered as acceptable income provided it can be documented by furnishing a recent copy of the respective letter of benefits or allotment setting forth the terms of the income. Disability income may only be used if it can be documented that the benefits must be on-going for a minimum of three (3) years. Temporary/short term disability income is not considered consistent or a stable source of income and cannot be used for qualifying purposes. Foster Care Foster care income may only be used to balance the expenses of caring for the foster children against any increased residual income requirements with documented history and verified continuance. Non-Taxable Income Non-taxable income may be grossed up only to calculate the debt ratio but not for the residual income calculation. The grossed up income must be annotated in the Remarks section of the Loan Analysis. The percentage of non-taxable income that may be added back is based on the appropriate tax rate for the income amount reflected on the borrower s tax returns. Do NOT add non-taxable income to taxable income before grossing up. The following non-reportable income may be grossed up 25%: o VA disability, o Child support, o BAH, and o BAS. Endeavor America Loan Services 05/19/2016 Page 31 of 59